Bottles of Johnnie Walker whisky move along on the production line at the Diageo-owned Shieldhall bottling plant in Glasgow. Photograph: David Moir/Reuters

The drinks giant Diageo, owner of Johnnie Walker and Bell's whisky, is to spend around £1bn on substantially increasing its whisky production to exploit a sharp surge in global demand for Scotch.

The London-based firm announced on Wednesday morning that it would build a new malt distillery, expand its existing whisky distilleries and greatly increase its bottling capacity to cope with the increase in worldwide sales, as part of a five-year expansion strategy.

It is now Scotland's largest export, with Diageo reporting a 50% growth in overall net sales of its Scotch whiskies and malts over the last five years both within the UK and abroad, taking total sales to £3bn and producing a third of its gross profits last year.

Johnnie Walker, known for its black label and red label blends, is the world's top-selling Scotch, with Diageo shifting nearly 18m cases worldwide in the year to June 2011. Its other leading brand, J&B, is the fourth highest selling Scotch, with 4.6m cases sold in the same period.

Around half of that £1bn anticipated investment will be tied up in the cash value of the whisky being matured for future sale and blending: it estimates that it will need £500m in working capital to cover that stock over the next five years.

The remaining £500m will be invested in the new distillery facilities, construction and on hiring a further 100 staff, many of whom would be apprentices. Diageo said that spending would see a further 250 construction jobs each year until 2017, with a further 500 jobs created elsewhere in the economy.

Paul Walsh, the firm's chief executive, said: "This is a pivotal moment in the development of the Scotch whisky category for Diageo. Over recent years our brands have achieved remarkable, sustained global growth. Scotch whisky is Scotland's most celebrated manufactured export, led by brands like Johnnie Walker, resonating with consumers from Boston to Beijing.

"We expect that success to continue, particularly in the high growth markets around the world, which is why we are announcing this major investment in Scotch whisky production, committing over £1bn in the next five years, to seize that opportunity for global growth."

The announcement suggests that Diageo has discounted or downgraded the impacts of Scottish government plans to introduce a minimum price of 50p a unit on all alcoholic drinks, and similar proposals by the UK government to introduce minimum pricing in the rest of the UK.

When the Scottish minimum pricing measures became law last month, the SWA repeated its warnings it would hit domestic consumers by increasing the basic price of a bottle of whisky to £14 and seriously damage the industry's efforts to combat tariff controls overseas.

John Swinney, the Scottish finance secretary, said this was very welcome news. He stressed this showed the industry had a strong future, hinting that the Scottish government was unimpressed by the industry's warnings about minimum pricing.

"The investment in new distilleries and warehousing capacity is a vivid illustration of the positive and optimistic outlook for demand in the sector," he said.

"This major decision by Diageo provides continued evidence that new private sector investment will help to deliver economic recovery and demonstrates that Scotland is very much open for business and investment."

About this article

Diageo to exploit global demand for whisky with £1bn investment

This article was published on
the Guardian website
at 07.03 EDT on Wednesday 6 June 2012.
It was last modified at 22.41 EDT on Tuesday 20 May 2014.
It was first published at 06.43 EDT on Wednesday 6 June 2012.